Seminars

Abstract: I introduce a preference for simplicity in choice under risk, run theoretically-motivated experiments that show that canonical models cannot fully capture simplicity-seeking behavior, and finally show that investors choose binary options that are dominated under standard preferences but can provide higher utility under simplicity theory. Formalizing simplicity theory axiomatically, I experimentally find that participants satisfy its characterizing axiom, and display behavior consistent with monotonic complexity aversion. I also show that: standard methods of estimating risk aversion conflate risk and complexity; dominance violations occur more frequently as complexity increases; and complexity aversion is heterogeneous in cognitive ability. The experiments are structured to separate this simplicity-seeking behavior from choice driven by cumulative prospect theory, prospect theory, rational inattention, sparsity, salience, or probability weighting that differs by number of outcomes, among other existing models. A second paper shows that in retail financial markets, simple dominated products are bought at higher prices than dominating complex ones, in a manner that cannot be captured by prospect theory, loss aversion, ambiguity aversion, or standard financial justifications for price anomalies, but is consistent with simplicity preferences.

※ 본 세미나는 VEAEBES(Virtual East Asia Experimental and Behavioral Economics Seminar Series) 주최로 열리는 세미나 입니다.

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